Custom, Excise & Service Tax Tribunal
4. Whether Order Is To Be Circulated To ... vs Cce Ahmedabad-Iii on 18 July, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
COURT - I
Appeal No.E/233/2006
Arising out of: OIO No.49-50/Commissioner(Adjudication)/2005, dt.03.10.2005
Passed by: Commissioner of Central Excise & Customs, Ahmedabad
For approval and signature:
Mr.M.V. Ravindran, Honble Member (Judicial)
Mr. H.K. Thakur, Honble Member (Technical)
1. Whether Press Reporters may be allowed to see the No
Order for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the No
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy of Seen
the order?
4. Whether order is to be circulated to the Departmental Yes
authorities?
Appellant:
CCE Ahmedabad-III
Respondent:
M/s Gujarat Ambuja Exports Ltd.
Represented by:
For Assessee: Shri Anand Nainawati, Adv. For Revenue: Shri S.K. Mall, Addl.Commissioner (A.R.) CORAM:
MR.M.V. RAVINDRAN, HONBLE MEMBER (JUDICIAL) MR. H.K. THAKUR, HONBLE MEMBER (TECHNICAL) Date of Hearing/Decision: 18.07.13 ORDER No. /WZB/AHD/2013, dt.18.07.13 Per: M.V. Ravindran This appeal is directed against Order-in-Original No.49-50/Commissioner(Adjudication)/2005, dt.03.10.2005.
2. The relevant facts that arise for consideration are that the respondent herein is manufacturing various kinds starch and classified the product under Chapter 11 of Central Excise Tariff Act, 1985 and cleared the same at Nil rate of duty. On an intelligence gather by the officers of DGCEI, the premises of the respondents were searched and various documents were recovered and statements of various personnel of assessee were recorded. On culmination of such an investigation, show cause notice was issued to the respondent herewith directing to show cause as to why their product should not be classified under Chapter 35 as modified starch. The adjudicating authority, after considering the submissions made by before him and also after granting personal hearing to the respondent, dropped the proceedings initiated by said show cause notice. Aggrieved by such an order, Revenue is in appeal before us.
3. Ld.Departmental Representative reiterates the grounds of appeal. It is his submission that the issue involved in this case is as to classification of the product manufactured by the respondent is mis-classified by them as use of requirement of certain chemicals like Potassium Permanganate, Sulphur, Borax, Sodium Metabisulphate, Soda Ash etc just give the required effect on the starch power to produce modified starch. It is his submission that these chemicals should give bleaching, sterilization and brightening effect, which would obviously differentiate between native starch and modified starch. It is his submission there is nothing on record to show that use of only higher quantities of such chemicals would result into change and manufacture of modified starch. It is also his submission that there is difference between modified starch and the native starch and actual user of the product manufactured by the respondent is also not considered by the adjudicating authority to arrive at the conclusion. It is his submission that the respondent, having resorted to mis-declaration of the product, and its use and not disclosing and parameters and use of chemicals for manufacturing of product, has resulted in intentional evasion of duty. It is his submission that classification of the product manufactured by the respondent under Chapter 11 is incorrect and the product needs to be classified under Chapter 35. He would heavily rely upon the decision of this Tribunal in the case of Anil Products Ltd 209 (241) ELT 584 (Tri-Ahmd), to submit that the respondents product would merit under Chapter 35 and the product manufactured by the respondent herein and M/s Anil Products Ltd. is one and the same.
4. Ld.Counsel, on the other hand, would draw our attention to Chapter Note of Chapter 11 and Chapter 35 and also HSN note of Chapter 35. He would also submit that in an identical issue in the case of Riddhi Siddhi Gluco Biols Ltd 2011 (270) ELT 291 (Tri-Bang), the co-ordinate Bench of the Tribunal has taken a view which is in favour of the assessee. He produces a copy of the said decision.
5. On careful consideration of the submissions made by both sides, we find that that the issue involved in this case is regarding classification of the product manufactured by the respondent. The respondent had classified the product under Chapter 11, while it is the case of the Revenue that the said product merits the classification under Chapter 35.
6. In our considered view, the decision of the co-ordinate bench of the Tribunal in the case of Riddhi Siddhi Gluco Biols Ltd (supra) was considering the very same issue (wherein one of was a Member). After considering in detail the various submissions made, the Bench reached to a conclusion that the product i.e. Maize Starch would merit classification under Chapter 11. To arrive at such a view, the Bench has recorded the following findings:-
7.2?The rival entries canvassed by the parties for classifying the impugned goods are Chapter Sub-Heading 11.03.00 and Chapter Sub-Heading 35.05.20 of the Central Excise Tariff. (The sub-headings applicable for starch underwent change in numbering later on also on re-organization of tariff w.e.f. 28-2-2005. However, the relevant entries germane for deciding the classification did not undergo any changes). These entries read as follows :
Heading No. Sub-Heading No. Description of goods Rate of duty (1) (2) (3) (4) 11.03 1103.00 Starches CSH 35.05 under which Sub-Heading 3505.20 held to be the relevant entry by the Commissioner reads as follows :
Heading Sub Description of goods Rate of No. Heading duty No. (1) (2) (3) (4) 35.05 Dextrins and other modified starches (for example, pregelatinised or esterified starches); glues based on starches, or on dextrins or other modified starches.
3505.10
- Esterified starches 3505.20
- Dextrins and other modified starches 3505.90
- Other There is no dispute that the content of starch and ash in the impugned goods is in excess of 45% and less than 2% by weight on dry basis respectively, prescribed for classifying the impugned goods as starches of Chapter Heading 11.03 as stipulated under Note 2 to Chapter 11. There is no dispute that the impugned goods conform to the description of Chapter Heading 11.03. However, as per the impugned order, these goods possess distinguishing attributes of modified starches and are classifiable under Chapter Sub-Heading 3505.20.
7.3?We note that the McGraw-Hill Encyclopedia of Science & Technology, 9th Edition relied on by the assessee speaks of modified starches thus: Modification of starch may involve change in physical form (pre-gelatinized), controlled degradation (dextrinization, oxidation, acid or enzyme modification) or chemical reaction (oxidation, substitution, cross-linking). Further the following paragraph in the said book summarizes the process of manufacture and properties of modified starches.
Modified starches that produce solutions of lower viscosity are obtained by (1) treating aqueous suspensions of starch with dilute acid below the gelatinization temperature (acid-thinned starches); (2) treating a gelatinized starch slurry with an alphamylase (enzymatically modified starch), commercially accomplished in a continuous process; (3) heating (roasting) dry starch with small amounts of acid (dextrinization) to produce dextrins (pyrodextrins, British gums, white dextrins, yellow dextrins) that often have a pale yellow to tan color; or (4) oxidizing starch in an aqueous suspension which results in the introduction of carboxyl and carboxyl groups and partial depolymerization of the starch. Each of these processes produces starch derivatives with the desired altered properties, for example, viscosity, paste clarity, or gel-forming ability, for different uses. Cross-linked starch derivatives are produced by treating an aqueous suspension of starch granule with cross-linking reagents. The resulting modified starches have improved cooking characteristics (higher gelatinization temperatures); increased stability to acid, heat or shear, with resulting control of viscosity during processing; and improved textural characteristics of starch pastes. Starch ethers or esters (substituted starches) are formed by treating an aqueous suspension of starch with appropriate reagents in the presence of an alkaline catalyst. These stabilized starch derivatives have freeze-thaw stability and a reduced tendency to undergo syneresis (formation of water on the surface of a gel or paste due to retrogradation). The pertinent HSN explanatory notes on the entry CSH 3505.20 in the Tariff reads as follows :
35.05 :
DEXTRINS AND OTHER MODIFIED STRACHES (FOR EXAMPLE., PREGELATINISED OR ESTERIFIED STARCHES); GLUES BASED ON STARCHES, OR ON DEXTRINS OR OTHER MODIFIED STARCHES. 3505.10 :
Dextrins and other modified starches 3505.20 :
Glues This heading covers:
(A) Dextrins and other modified starches, i.e., products obtained by the transformation of starches through the action of heat, chemicals (e.g., acids, alkalis) or diastase, and starch modified, e.g., by oxidation, esterification or etherification. (1) Dextrins, obtained either by the degradation of starch by hydrolysis with acids or enzymes, the resulting product being termed maltodextrin. However, products of this kind are classified here as dextrins only if their reducing sugar content, expressed as dextrose on the dry substance, does not exceed 10%;
or by roasting starch, with or without small quantities of chemical reagents. If no reagents are used, the resulting product is known as roasted starch.
Dextrins are white, yellowish or brown powders, depending on manufacturing process and the kind of starch used. They are soluble in water (suitably heated, if necessary) but not in alcohol.
(2) Soluble starch (amylogen) : an intermediate product obtained in the transformation of starches into dextrins. prepared by boiling starch in water, or by keeping starch for a long while in contact with cold dilute acid. The heading also includes soluble starches containing very small quantities of kaolin, mainly used for adding to cellulose pulp during the manufacture of paper.
(3) Pregelatinised or swelling starch, obtained by moistening starch with water and heat-treating it to obtain a more or less gelatinous mass, which is then dried and ground to a powder. This product can also be obtained by extrusion, followed by grinding to a powder. It is used in paper manufacture, in the textile industry, in metallurgy (for the preparation of foundry core binders), in the food industries and for animal feed, etc. (4) Etherified or esterified starches (starches modified by etherification or esterification). Etherified starches include those containing hydroxyethyl, nydroxypropyl or carboxymethyl groups. Esterified starches include starch acetates used principally in the textile or paper industries, and starch nitrates (nitrostarch) used in the manufacture of explosives.
7.4?As per the explanatory notes, modified starches may be distinguished from unmodified starches of Chapter 11 on the basis of changes in their properties, for example, solution and gel clarity, tendency to cool or to crystallize, water binding capacity, freeze-thaw stability, gelatinization temperature or peak viscosity. We note that different physical and chemical properties distinguish modified starches of Chapter Heading 3505 from native starches of Chapter 11. We find that unless these parameters are ascertained on test, it cannot be conclusively found as to whether the impugned goods are correctly classifiable under Chapter 11 of the Tariff or Chapter Heading 3505 of the Tariff.
7.5?We find that though the assessee had relied on various technical authorities to canvass its case, the Adjudicating Authority has not referred to or discussed any of these in his order. The test report of South India Textile Research Association submitted by the appellant extracted below gives the parameters of MSP sold for use in textile industry by the assessee.
Sl. No. Characteristics Actual test results Standard as per IS 1184-1977 1 Moisture content 11.58% Max 13.00% 2 Ash content 0.07% Max 0.25% 3 PH 5.35 Min 4.50 4 Free Acidity 21.30 ml Max 40.0 ml 5 Cold Water Soluble 0.21% Max 0.40% 6 Petroleum Hydro Carbon Extractable Matters 0.25% Max 0.25% 7 Viscosity at 750C (2% Solution) 35 Secs Min 30 Secs 8 Starch Content 99.72% Min 98.00% In the opinion furnished by the Ahmedabad Textile Industry Association, Ahmedabad, the following opinion is given on the properties of modified starch distinguishing it from MSP.
Commercially an item is considered as modified starch only if the parameters such as matching with the IS specifications for modified starches. The use depends on the type and extent of modification. Most of the starch derivatives (modified starches) can be distinguished by physical and chemical methods and with instrumental analytical techniques. The Reader in Food Technology, University of Bombay had this to say on native and modified starches.
Native and modified starches do have different physical and chemical properties. They can be distinguished either at the structural level by scanning electron microscopy (SEM), or from the physicochemical properties (as exemplified from the Brabender amylograms). Central Pulp and Paper Research Institute clarified in response to a reference by Riddhi Siddhi that unmodified and modified starches have different chemical and physical characteristics such as viscosity and gelatinization temperature. These could be distinguished by analytical methods.
Professor and Head of Department of Biotechnology, RV College of Engineering certified that MSP could not be considered as modified starch and an item was considered as modified starch only if the parameters such as cold water solubility, alkaline fluidity, viscosity, microscopic observations, etc., matched the specifications generally accepted for modified starches. In Anil Products Ltd. case (supra), the Tribunal found that in deciding the classification of similar products as involved in the instant case, the authorities had relied on the opinion of the Chemical Examiner who was not aware of the correct standards and had conducted the chemical test not as per the relevant standard and equipment. As the Commissioner had not considered or discussed various parameters of modified starches in the impugned order, the Tribunal remanded the matter for fresh adjudication after fresh chemical examination of the samples.
7.6?We find that native starch of Chapter Heading 11 and modified starch of Chapter Heading 3505 are different in its physical and chemical properties as reflected in the explanatory notes to HSN, the encyclopedia relied on and the expert opinions. As the Commissioner had relied on the opinion of the departmental expert, it was necessary that he also critically examined the expert opinions furnished by the assessee to support its case. It was open to the Commissioner to examine the experts before he arrived at a finding against the assessee and relying only on a similar opinion of the Chemical Examiner who also had not studied the actual process of manufacture followed by the assessee or determined the properties of the impugned goods by testing samples. In our considered opinion, the impugned order is not sustainable, for the reason that the important conclusion on the classification was solely based on the personal knowledge and opinion of a departmental expert not supported by empirical test of the relevant values/properties that would justify classification of the products in dispute under CH 3505 as modified starch. We note that the Commissioner held that it is not necessary to allow any cross-examination of the so-called experts and authorities of the numerous institutions being referred to by the assessee. We hold that it was necessary and appropriate that the Commissioner examined experts himself before deciding the classification based on the opinion of the Chemical Examiner. Though the results of tests conducted by the Chemical Examiner could be preferred over results of such tests conducted by private agencies, personal opinion of the Chemical Examiner without studying the process of manufacture followed or carrying out chemical test as prescribed cannot form safe and reliable basis for deciding classification. In the circumstances, we find that the Commissioners conclusions are not substantiated with evidence or proper reasoning. In these circumstances, we set aside the impugned orders and allow these appeals.
7. It is to be noted that the decision of the Tribunal in the case of Anil Products Ltd was also cited before the Bench, who decided the issue in the case of Riddhi Siddhi Gluco Biols Ltd, and as reproduced above, the said decision has been properly addressed and departed.
8. In our view, the decision in the case of Riddhi Siddhi Gluco Biols Ltd (supra) being later decision, will prevail over the decision of Tribunal in the case of Anil Products Ltd. Accordingly, following the decision of the Tribunal in the case of Riddhi Siddhi Gluco Biols Ltd, we hold the classification of the product manufactured by the appellant will fall under Chapter 11 and the impugned order passed by the adjudicating authority is correct, legal and does not suffer from any infirmity.
9. For the foregoing reasons, the appeal is rejected.
(Operative portion of the order pronounced in Court)
(H.K. Thakur) (M.V. Ravindran)
Member (Technical) Member (Judicial)
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